HIGHEST EVER SEC WHISTLEBLOWER BOUNTY AWARDED
On September 22, the SEC reported that it expected to provide an award of more than $30 million to a whistleblower who provided key information which led to a successful SEC enforcement action. The award is the highest made by the SEC to date, and is the fourth award to a whistleblower living outside of the US. No other information about the award, the SEC's enforcement activity or the whistleblower was made public.
The SEC's whistleblower program was established in 2012, following the passage of section 922 of the Dodd-Frank Act and rewards persons who provide the SEC with high quality, original information which leads to a successful enforcement action with over $1 million in sanctions. Whistleblowers generally receive between 10 to 30 per cent of the money collected in a case.
THE FIDUCIARY EXCEPTION TO ATTORNEY-CLIENT PRIVILEGE
A recent decision in the Delaware courts reiterated the fiduciary exception to attorney-client privilege, which allows shareholders of a corporation to view the corporation's legally privileged documents in certain circumstances. Wal-Mart conducted an internal investigation into allegations that its Mexican subsidiary, WalMex, was responsible for widespread bribery in the country. A New York Times article in 2012 made claims that Wal-Mart failed to adequately conduct the investigation, ignoring their counsel's plan for the investigation and transferring control of the investigation to WalMex's general counsel, who was alleged to have played a role in the bribery.
A shareholder, the International Brotherhood of Electrical Workers Trust Fund ("IBEW") brought a claim in the Delaware Court of Chancery, seeking disclosure of documents related to the investigation, including those covered by attorney-client privilege. The Delaware Court of Chancery, affirmed by the Delaware Supreme Court in Wal-Mart Stores, Inc. v. Indiana Electrical Workers Pension Trust Fund IBEW, No. 614, 2014 Del. LEXIS 336 (July 23, 2014) followed Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970) in holding that a shareholder, upon showing good cause, was entitled to view documents otherwise covered by attorney-client privilege in order to prove fiduciary breaches by those in charge of the corporation. Once a shareholder established that the fiduciary exception to attorney-client privilege was applicable it must, however, take appropriate steps to protect the confidentiality of the privileged information. In this case, the IBEW had showed good cause, was not merely on a "fishing expedition" and so was entitled to disclosure of the documents.
While counsel conducting an internal investigation need to be aware that their privileged documents may be disclosable to shareholders in certain circumstances, some comfort should be drawn from the court's determination that the fiduciary exception to attorney-client privilege was narrowly drawn and difficult to satisfy.
THE MEANING OF "FOREIGN OFFICIALS" UNDER THE FOREIGN CORRUPT PRACTICES ACT
The most recent battle about the increasingly expansive reach of the Foreign Corrupt Practices Act ("FPCA") concerned the question of whether state owned enterprises (SOEs) can be considered "instrumentalities" of foreign governments and therefore "foreign officials". If so, the provision of value to SOEs in order to obtain or retain business could fall within the anti-bribery provisions of the FCPA. US authorities have, for some years, considered SOEs to be instrumentalities of foreign governments and directed their enforcement activities accordingly.
Earlier this year, the 11th Circuit in U.S. v. Esquenazi et al., No. 11-15331 (11th Cir. May 16, 2014) gave judicial approval to the authorities' actons and determined that, based on the legislative history of the FPCA, and amendments to the Act in 1998, SOEs were instrumentalities of foreign governments and fell within the provisions of the FCPA. This decision, criticized by many commentators as unacceptably increasing the scope of the FCPA beyond its original legislative intention, resulted in a petition for certiorari being filed in the Supreme Court in August on this particular point.
The petitioners argue that there is no basis for the court to consider a SOE, which is not part of a government, or which does not exercise a governmental function, an instrumentality of a foreign government. They argue that permitting this expansive definition of foreign official increases the breadth and uncertainty of the FCPA and could, to give an extreme example, lead to a janitor working for General Motors (the recipient of a large amount of government funds) to be a foreign official, if GM was located overseas.
The relevance of the 11th Circuit decision to risk-averse corporates with strict compliance programs is limited: many treat SOEs as foreign officials already. However, if the Supreme Court hears the case, and calls into question the position of SOEs as instrumentalities of foreign governments, the authorities' increasing extension of the reach of the FCPA may finally be checked.